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The National Security Group, Inc. Releases Earnings

The National Security Group, Inc. (NASDAQ:NSEC) results for the three
months and six months ended June 30, 2014 and 2013, based on accounting
principles generally accepted in the United States of America, were
reported today as follows:

(dollars in thousands)

Three months ended June 30,

Six months ended June 30,

2014

2013

2014

2013

REVENUES

Net premiums earned

$

14,100,000

$

13,038,000

$

27,924,000

$

25,972,000

Net investment income

1,030,000

689,000

1,978,000

1,734,000

Net realized investment gains

312,000

1,030,000

400,000

1,057,000

Other income

1,713,000

145,000

1,867,000

317,000

Total Revenues

17,155,000

14,902,000

32,169,000

29,080,000

BENEFITS, LOSSES AND EXPENSES

Policyholder benefits and settlement expenses

9,155,000

8,260,000

17,019,000

17,811,000

Amortization of deferred policy acquisition costs

873,000

923,000

1,771,000

1,865,000

Commissions

1,967,000

1,486,000

3,994,000

3,468,000

General and administrative expenses

2,413,000

2,162,000

4,439,000

3,965,000

Taxes, licenses and fees

521,000

474,000

1,051,000

960,000

Interest expense

382,000

435,000

768,000

877,000

Total Benefits, Losses and Expenses

15,311,000

13,740,000

29,042,000

28,946,000

Income (Loss) Before Income Taxes

1,844,000

1,162,000

3,127,000

134,000

INCOME TAX EXPENSE (BENEFIT)

Current

80,000

88,000

168,000

220,000

Deferred

(170,000

)

109,000

26,000

(642,000

)

(90,000

)

197,000

194,000

(422,000

)

Net Income

$

1,934,000

$

965,000

$

2,933,000

$

556,000

INCOME PER COMMON SHARE

$

0.77

$

0.39

$

1.18

$

0.23

DIVIDENDS DECLARED PER SHARE

$

0.03

$

0.025

$

0.06

$

0.05

Reconciliation of Net Income to non-GAAP Measurement

Net income

$

1,934,000

$

965,000

$

2,933,000

$

556,000

Income tax expense (benefit)

(90,000

)

197,000

194,000

(422,000

)

Realized investment gains, net

(312,000

)

(1,030,000

)

(400,000

)

(1,057,000

)

Operating Income (Loss)

$

1,532,000

$

132,000

$

2,727,000

$

(923,000

)

For the three months ended June 30, 2014, the Company had net income of
$1,934,000, $0.77 per share, compared to $965,000, $0.39 per share, for
the same period last year. On a pretax basis, for the three months ended
June 30, 2014, we had income of $1,844,000 compared to $1,162,000 for
the three months ended June 30, 2013. Our pretax income for the three
months ended June 30, 2014, consisted of income from operations of
$1,532,000 and realized investment gains of $312,000. The pretax income
for the three months ended June 30, 2013, consisted of income from
operations of $132,000 and realized investment gains of $1,030,000.

The primary component of our $1,532,000 in income from operations for
the three months ended June 30, 2014 was a non-recurring $1,621,000 net
gain from company owned life insurance (reported as a component of Other
Income in the preceding table). Income from operations for the second
quarter was adversely impacted by an increase in policy holder benefit
claims, particularly in our P&C segment.

Claims for the three months ended June 30, 2014 were $9,155,000 compared
to $8,260,000 for the same period last year. The $895,000 increase
during the second quarter, compared to last year, was primarily due an
increase in catastrophe losses in our P&C segment. Catastrophe losses
reported in the second quarter of 2014 were up $1,305,000 compared the
second quarter of 2013.

Net premium earned increased 7.5% in the first half of 2014 compared to
the same period last year. A combination of increased direct premium
revenue and a decrease in reinsurance cost (ceded premium) were the two
primary factors contributing to the increase in net premium earned for
the six months ended June 30, 2014. Increases in direct premium were
driven by a combination of rate increases implemented in our core
dwelling and homeowners programs along with a moderate increase in
policy issuance. The decrease in reinsurance cost, reducing ceded
premium, was due to an 18% reduction in our catastrophe reinsurance cost.

The Company ended the first half of 2014 with net income of $2,933,000,
$1.18 per share, compared to net income of $556,000, $0.23 per share,
for the same period last year. On a pretax basis, for the six months
ended June 30, 2014, we had income of $3,127,000 compared to $134,000
for the six months ended June 30, 2013. Our pretax income for the six
months ended June 30, 2014, consisted of income from operations of
$2,727,000 and realized investment gains of $400,000. The pretax income
for the six months ended June 30, 2013, consisted of a loss from
operations of $923,000 and realized investment gains of $1,057,000.

The primary component of the $2,727,000 in income from operations for
the six months ended June 30, 2014 was a non-recurring $1,621,000 net
gain from company owned life insurance. In addition to the COLI gain,
operating income was much improved in 2014 due to lower P&C segment
claims activity in the first quarter of 2014.

Year to date claims were down $792,000 in 2014 compared to 2013. The
primary reason for the year to date decrease in 2014 compared to 2013
was a reduction in claims related to both cat events and non-catastrophe
wind losses in our P&C segment due to a lower frequency of claims in the
first quarter of this year. Through June 30, 2014, the P&C segment had a
$1,529,000 reduction in cat event losses compared to the same period
last year. During 2014, the P&C segment was impacted by six cat events
totaling $2,454,000 compared to nine cat events in 2013 totaling
$3,983,000. In addition, non-catastrophe wind loses were down $250,000
in 2014 compared to 2013. Offsetting these decreases were a $618,000
increase in claims from fire related losses as well as $600,000 in
adverse loss development from the settlement of a claim in a
discontinued commercial insurance program.

Shareholders' equity as of June 30, 2014 was $38,368,000 up $4,896,000
from our December 31, 2013 Shareholders' equity of $33,472,000. Book
value per share increased $1.88 over the six month period ended June 30,
2014 to $15.30 per share compared to $13.42 per share at December 31,
2013. The primary factors contributing to the increase in Shareholders'
equity in the first six months of 2014 was net income of $2,933,000 and
other comprehensive income of $1,979,000. The increase in other
comprehensive income was primarily driven by the declining interest rate
environment which increased the market value of our investments in fixed
income securities.

The National Security Group, Inc. (NASDAQ Symbol: NSEC), through its
property and casualty and life insurance subsidiaries, offers property,
casualty, life, accident and health insurance in eleven states. The
Company writes primarily personal lines property coverage including
dwelling fire and windstorm, homeowners and mobile homeowners lines of
insurance. The Company also offers life, accident and health,
supplemental hospital and cancer insurance products. The Company was
founded in 1947 and is based in Elba, Alabama.